Following its heyday as a global maritime power during the 15th and 16th centuries, Portugal lost much of its wealth and status with the destruction of Lisbon in a 1755 earthquake, occupation during the Napoleonic Wars, and the independence of its wealthiest colony of Brazil in 1822.

A 1910 revolution deposed the monarchy; and for most of the next six decades, repressive governments ran the country.

In 1974, a left-wing military coup installed broad democratic reforms.

The following year, Portugal granted independence to all of its African colonies.

Portugal is a founding member of NATO and entered the EC (now the European Union) in 1986.

In January 2011, Portugal assumed a nonpermanent seat on the UN Security Council for the 2011-12 term.

Portugal does not recognize Spanish sovereignty over the territory of Olivenza based on a difference of interpretation of the 1815 Congress of Vienna and the 1801 Treaty of Badajoz

Geography

Location: Southwestern Europe, bordering the North Atlantic Ocean, west of Spain

People and Society

Population: 10,781,459 (July 2012 est.)

Ethnic Groups: homogeneous Mediterranean stock; citizens of black African descent who immigrated to mainland during decolonization number less than 100,000; since 1990 East Europeans have entered Portugal.

On July 1, 2004, Spain and Portugal were in the midst of a blistering heat wave that cost several people their lives. When the Moderate Resolution Imaging Spectroradiometer (MODIS) on the Aqua satellite captured this image (13:35 UTC, or 2:35 p.m. local time in Lisbon, Portugal) cool, sheltering clouds hugged only the northern coastline, while the rest of the country baked in the Sun. Source: NASA. Credit: Jacques Descloitres, MODIS Rapid Response Team, NASA/GSFC

Urbanization: 61% of total population (2010) growing at an annual rate of change of1% (2010-15 est.)

History

Portugal is one of the oldest states in Europe. It traces its modern history to A.D. 1140 when, following a 9-year rebellion against the King of Leon-Castile, Afonso Henriques, the Count of Portugal, became the country's first king, Afonso I. Afonso and his successors expanded their territory southward, capturing Lisbon from the Moors in 1147. The approximate present-day boundaries were secured in 1249 by Afonso III.

By 1337, Portuguese explorers had reached the Canary Islands. Inspired by Prince Henry the Navigator (1394-1460), explorers such as Vasco da Gama, Bartolomeu Dias, and Pedro Alvares Cabral made explorations from Brazil to India and Japan. Portugal eventually became a massive colonial empire with vast territories in Africa (Angola, Mozambique, Cape Verde, Guinea Bissau, Sao Tome) and Latin America (Brazil), and outposts in the Far East (East Timor, Macau, Goa).

Dynastic disputes led in 1580 to the succession of Philip II of Spain to the Portuguese throne. A revolt ended Spanish hegemony in 1640, and the House of Braganca was established as Portugal's ruling family, lasting until the establishment of the Portuguese Republic in 1910.

During the next 16 years, intense political rivalries and economic instability undermined newly established democratic institutions. Responding to pressing economic problems, a military government, which had taken power in 1926, named a prominent university economist, Antonio Salazar, as finance minister in 1928 and prime minister in 1932. For the next 42 years, Salazar and his successor, Marcelo Caetano (appointed prime minister in 1968), ruled Portugal as an authoritarian "corporate" state. Unlike most other European countries, Portugal remained neutral in World War II. It was a charter member of NATO, joining in 1949.

In the early 1960s, wars against independence movements in Portugal's African territories began to drain labor and wealth from Portugal. Professional dissatisfaction within the military, coupled with a growing sense of the futility of the African conflicts, led to the formation of the clandestine "Armed Forces Movement" in 1973.

The downfall of the Portuguese corporate state came on April 25, 1974, when the Armed Forces Movement seized power in a nearly bloodless coup and established a provisional military government.

Portugal moved from authoritarian rule to parliamentary democracy following the 1974 military coup against Marcelo Caetano, whose rule embodied a continuation of the long-running dictatorship of Antonio Salazar. After a period of instability and communist agitation, Portugal ratified a new constitution in 1976. Subsequent revisions of the constitution placed the military under strict civilian control; trimmed the powers of the president; and laid the groundwork for a stable, pluralistic liberal democracy, as well as privatization of nationalized firms and the government-owned media. Portugal joined the European Union (EU) in 1986 and has moved toward greater political and economic integration with Europe ever since.

Current Administration
Socialist Party (PS) Prime Minister Jose Socrates resigned in March 2011 after his minority government’s austerity plan was rejected by the parliament. Rising unemployment and unsustainable public sector deficits led his caretaker government to seek a May 2011 EU/International Monetary Fund bailout agreement. Social Democratic Party (PSD) Prime Minister Pedro Passos Coelho’s government took office following June 5, 2011 parliamentary elections. Since then, the new government has been largely preoccupied with the implementation of broad austerity measures pursuant to the agreement.

Social Democrat Anibal Cavaco Silva, a center-right candidate and former prime minister (1985-1995), won the Portuguese presidential election on January 22, 2006 with 50.6% of the vote, becoming Portugal’s first center-right head of state in 3 decades. He was re-elected on January 23, 2011 with 53% of the vote and was sworn in on March 9, 2011.

Government

The four main branches of the national government are the presidency, the prime minister and Council of Ministers (the government), the Assembly of the Republic (the parliament), and the judiciary. The president, elected to a 5-year term by direct, universal suffrage, also is commander in chief of the armed forces. Presidential powers include confirming the prime minister and Council of Ministers; dismissing the prime minister; dissolving the assembly to call early elections; vetoing legislation, which may be overridden by the assembly; and declaring a state of war or siege. The Council of State, a presidential advisory body, is composed of six senior civilian officers, former presidents elected under the 1976 constitution, five members chosen by the assembly, and five selected by the president.

The government is headed by the prime minister, who is nominated by the assembly for confirmation by the president. The prime minister then names the Council of Ministers. A new government is required to present its governing platform to the assembly for approval.

The Assembly of the Republic is a unicameral body composed of 230 deputies. Elected by universal suffrage according to a system of proportional representation, deputies serve terms of office of 4 years, unless the president dissolves the assembly and calls for new elections. The national Supreme Court is the court of last appeal. Military, administrative, and fiscal courts are designated as separate court categories. A nine-member Constitutional Tribunal reviews the constitutionality of legislation.

The Azores and Madeira Islands have constitutionally mandated autonomous status. A regional autonomy statute promulgated in 1980 established the Government of the Autonomous Region of the Azores; the Government of the Autonomous Region of Madeira operates under a provisional autonomy statute in effect since 1976. Continental Portugal is divided into 18 districts, each headed by a governor appointed by the Minister of Internal Administration.

Economy

Portugal has become a diversified and increasingly service-based economy since joining the European Community - the EU's predecessor in 1986.

Over the past two decades, successive governments have privatized many state-controlled firms and liberalized key areas of the economy, including the financial and telecommunications sectors.

The country qualified for the Economic and Monetary Union (EMU) in 1998 and began circulating the euro on 1 January 2002 along with 11 other EU members.

GDP per capita stands at roughly two-thirds of the EU-27 average.

A poor educational system and a rigid labor market have been obstacles to greater productivity and growth.

Portugal also has been increasingly overshadowed by lower-cost producers in Central Europe and Asia as a destination for foreign direct investment.

Portugal's low competitiveness, low growth prospects, and high levels of public debt have made it vulnerable to bond market turbulence.

In recent years, however, Portugal has suffered from sluggish to negative growth, a ballooning budget deficit, and low productivity and competitiveness, which, exacerbated by the onset of the euro zone debt crisis, led to record-high spreads on sovereign debt and downgrades in credit ratings. On May 3, 2011, Portugal’s Socialist caretaker government reached agreement with the European Commission, European Central Bank, and International Monetary Fund (IMF)--“the troika”--on a €78 billion (approx. $111 billion), 3-year bailout package that required Portugal to implement comprehensive austerity measures, including privatization of state-owned enterprises and measures to reform its labor market and justice sector. The package was approved by EU and euro zone finance ministers in mid-May. The new PSD-led government of Prime Minister Coelho took office in June 2011. The troika has given the Portuguese Government high marks for its implementation of the agreement, while identifying gaps and areas for improvement. Although workers have organized protests and strikes to oppose austerity measures, demonstrations have been relatively nonviolent. Nevertheless, Portugal’s economic future depends heavily on wider euro zone developments.

Before the economic crisis, Portugal's membership in the EU had contributed to stable economic growth, largely through increased trade fostered by Portugal’s low labor costs and an influx of EU funds for infrastructure improvements. Portugal's subsequent entry into the EMU brought exchange rate stability, lower inflation, and lower interest rates. Falling interest rates, in turn, lowered the cost of public debt and helped the country achieve its fiscal targets. Until 2001, average annual growth rates consistently exceeded those of the EU average. However, a dramatic increase in private sector loans led to a serious external imbalance, with large capital account deficits that year. De-leveraging by Portuguese banks to meet the June 2011 EU requirement to increase core tier-one capital ratios above 9% has caused bank lending to tighten.

The Government of Portugal managed to keep the budget deficit under 3% in accordance with the euro zone's Stability and Growth Pact during 2002-2004. However, in 2005 Portugal’s budget deficit surged to a high of 5.9%. Subsequently, the government undertook efforts to bring the budget situation under control. In 2006, the government reduced the deficit to 4.1%, mainly through revenue-generating measures, including increased collection enforcement and higher taxes. The 2007 budget further reduced the deficit to 3.1% of GDP, through spending cuts and structural reforms. In 2009, however, the budget deficit soared to 10.1% of GDP as a result of a more than 11% drop in tax revenue. Portugal’s public debt reached 93% of GDP in 2010, with a projected increase to 97.3% of GDP in 2011.

Helped in part by a wider EU recovery, the Portuguese economy grew by 2.74% in 2007, up from 1.4% the previous year. But a slowing regional economy saw the Portuguese economy contract by 0.35% in 2008 and by 2.1% in 2009. Although GDP grew 0.91% in 2010, it contracted 1.6% in 2011 and is projected to contract 3.2% in 2012 as a result of higher taxes and public wage cuts introduced under the government’s austerity program.

Unemployment is expected to rise in coming years and reach 12.5% in 2011, 13.8% in 2012, and 14.2% in 2013, up from 7.6% in 2008, 9.5% in 2009, and 10.8% in 2010.

The service sector, which includes public service, wholesale and retail trade, tourism, real estate, and banking and finance, is now Portugal's largest employer, having overtaken the traditionally predominant manufacturing and agriculture sectors since the country joined the EU in 1986. EU expansion into Eastern Europe has negated Portugal's historically competitive advantage of relatively low labor costs, particularly in the manufacturing and agriculture sectors. Since 2009, governments have been working to change Portugal's economic development model from one based on public consumption and public investment to one focused on exports, private investment, and development of the high-tech sector.

Due to weak economic growth, Portugal has lost ground relative to the rest of the EU since 2002. Portugal's 2010 per capita GDP stood at 80 Purchasing Power Standards (PPS) compared to the EU-27 average of 100 PPS, leaving the country in last place among its Western European counterparts after accounting for price differences (but ahead of EU’s newest members). Now among the weaker economies in the EU, and the third euro zone member (after Greece and Ireland) to request a bailout, Portugal aims to reduce its budget deficit to 5.9% (from 9.1% in 2010) of GDP in 2011, 4.5% in 2012, and 3% in 2013. In accordance with the terms of its bailout agreement, Portugal has until 2014 to bring its budget deficit back below the mandated 3% euro zone limit. In 2010, the government implemented a series of austerity measures, including cutting public sector wages, reducing attrition replacement hiring, decreasing pension benefits for early government retirement, and increasing taxes. The government’s 2012 budget, considered the most demanding in 30 years, includes salary cuts for public sector employees, benefit cuts, and tax hikes. The government seeks to impose fiscal discipline and further reduce its deficit over the next 3 years through structural reform measures, as agreed upon with the EU and IMF.